ACO at Three Years: Not Quite What We Were Hoping For

CMS has just released the results from the third year (2014) of the ACO program. The goal of the ACO program is to improve the quality while reducing the costs of healthcare. It is the centerpiece of “value-based” reimbursement that is dominating the efforts in healthcare reform. After three years of operation involving 32 Pioneers and 404 shared savings (MSSP) ACOs, it appears that the model is falling short of its goal.

Over these three years, ACOs have improved their scores on the 33 quality measures. However, many providers that are not part of an ACO are also hitting these same quality targets as they strive to meet Meaningful Use, PQRS, and PCMH requirements. CMS has not compared the quality measurements of ACOs and non-ACOs because the difference, if any, would likely be small.

A financial incentive was built into the ACO model to encourage providers to reduce wasteful spending while improving quality. Since the program was launched in 2012, most ACOs have not saved enough money to earn a bonus. The programs that received a bonus payment in 2014 included 11 of the remaining 20 Pioneer ACOs (55%), and 92 of the 404 MSSP ACOs (23%).

The aggregate savings of all of the ACOs has been in the range of 1 to 1.5%. Since some of those savings are returned to the ACOs as a bonus, the savings for Medicare are quite a bit smaller. Total Medicare savings in 2014 (year 3) was $411 million, which, based on an ACO enrollment of 7.8 million seniors (14.1% of all Medicare beneficiaries), the savings to Medicare represent 0.49% of the total expenditures on ACO patients. Furthermore, at least some of the $411 million must have been used to administer the program.

In the first three years, ACOs invested a total of $1.5 billion to set up and run these programs. Thus far they have received only $656 million back in bonus payments. The high cost of running an ACO, plus the pressure to accept downside risk are among the reasons that many ACOs are considering an exit from the program, as indicated by Clif Gaus, CEO of NAACOs (National Association of ACOs).

Although the data gives little reason to be optimistic, HHS and CMS seem very committed to the ACO model. Pushing forward with this model will promote more provider consolidation given the challenges of setting up and running an ACO. The increase in costs that typically follows provider mergers will likely exceed any savings that ACOs might generate.

The ACO program is not living up to the needs of our healthcare system. If we are looking for healthcare value, it may be time for a different strategy.